Being greedy when investing can lead to postponing the act of rebalancing which in turn skews the risk.

1. Rebalancing typically involves the periodic buying and/or selling of assets in portfolios to maintain an original desired level of asset allocation.

2. The objective of portfolio rebalancing is not to time the market but to reduce risk.

3. Rebalancing can be done after fixed intervals of time or when the allocation to any asset class crosses a pre-determined level.

4. Investor greed can lead to postponing of the rebalancing decision which in turn skews the risk. Investor fear can lead to rebalancing the portfolio early on which can result in loss of potential returns.

5. It is important to keep an eye on the costs, loads and taxation before rebalancing the portfolio.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)

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